“The severity of California’s housing crisis is difficult to exaggerate. Stories about people with decent jobs having no choice but to live in vehicles are increasingly common. So are stories about people who have to commute several hours from cheaper inland communities to costly urban areas, and about single professionals who basically have no other option but to pack into large homes like sardines, just as some college students do. With average rents for two-bedroom apartments in excess of $2,000 and median home prices topping $600,000, it’s no surprise to see a strong push for Proposition 10, an initiative that would throw out a state law that bans rent control on all housing built after Feb. 1, 1995, and that gives landlords the right to raise the rent to a market rate after a tenant moves out. The measure would allow cities and counties to impose permanent price controls on rental units.
The problem for advocates is that rent control has a long history that shows not only that it doesn’t work, but also that it makes housing problems worse. That’s why Nobel Prize-winning economist and longtime The New York Times columnist Paul Krugman wrote back in 2000 that “rent control is among the best-understood issues in all of economics, and — among economists, anyway — one of the least controversial.” He cited a 1992 survey of the American Economic Association that found that 93 percent of members agreed that “a ceiling on rents reduces the quality and quantity of housing.”
Nothing has changed since then. A study of rent control in San Francisco three Stanford academics published in January found that while those in rent-controlled units benefited dramatically, rent control led to a scarcity of available rentals, much higher rental costs for newcomers to the city, and a sharp decline in rent-controlled units as owners converted property to types of housing not subject to rent limits. The study also found rent control may have accelerated the gentrification of once-poor neighborhoods. The study is based on a massive database of real-estate transactions after 1994, when San Francisco expanded rent control in ways not affected by the 1995 state law limiting local rent control.
As Krugman notes, this is utterly predictable when government gets in the way of the law of supply and demand. But the AIDS Healthcare Foundation, the well-funded Los Angeles advocacy group driving Proposition 10, has taken an unusual position. On its website and in meetings with journalists, representatives of the group and its allies simply declare that the economic conventional wisdom is wrong. They flatly assert that “rent control encourages new construction and maintenance.” Picking and choosing from statistics from across the nation, they suggest that rent control correlates with construction of new apartments. But that would mean the developers, business leaders and economists who say basic incentives and disincentives matter deeply in housing construction are all wrong.
There is one valid point that Proposition 10 supporters make: It could take decades to see a payoff from efforts to bring down housing costs by sharply increasing new construction. That’s why it’s urgent that the California Legislature pass more bills making it easier and cheaper to build housing and that local authorities become far more insistent about developers meeting requirements to include affordable units in larger projects. It’s also why it’s time to consider a steep increase of state and federal rental tax credits for renters in expensive areas.”